With its long history in Islamic finance and proven track record as a popular base for Islamic funds, Luxembourg has finally taken the seminal step of announcing its first sovereign Sukuk issuance. On the 17th of December 2013, the Ministry of Finance presented a draft bill to the parliament proposing a Sukuk issuance worth EUR200 million or its US dollar equivalent.
In an exclusive interview with Islamic Finance
news Sufian Bataineh, a counsel of banking and finance at OPF Partners and Andreas Heinzmann, a capital markets partner at Bonn & Schmitt, shared their views.
First proposed in 2011, the idea of a sovereign Sukuk was initiated by the former administration’s Ministry of Finance. Due to the legal requirements of 1999, should the government opt to raise funds above the amount stipulated, it must be approved through a special law. According to Sufian, the Sukuk is now just a matter of time . “A week before our former administration stepped down, its Ministry of Finance announced that the issuance of a sovereign Sukuk had been approved. And shortly after the new government came into force, the Sukuk bill was presented to the parliament. I am 100% sure that there will be no problem at the parliament as both parties have signified their approval thereof,” he said.
Affirming his confidence in the expedition of the Sukuk law, Heinzmann shares the same sentiments as Sufian. “According to the Luxembourg government, we can expect to have this issuance made within the year. As of today, we do not see any hurdles that could slow down the process of the issuance.” With the relatively small size of the deal, the Sukuk may not have a great impact on the global Islamic debt capital market. However, it is a means of establishing the country’s presence in a landscape of increasing competition. “We expect to attract a significant number of Islamic investors in Luxembourg by being recognized as the first friendly financial place within the European Union for Islamic debt finance,” continued Heinzmann. As announced last year, the UK government also plans to issue a sovereign Sukuk worth GBP200 million (US$329.58 million) in 2014. Both countries are currently in a race to be the first western government to issue Islamic debt.
Based on the draft law, the sovereign Sukuk will be issued under an Ijarah structure. Three real estate assets have already been identified for the proposed Sukuk. The Luxembourg government will acquire these three buildings through an SPV at a purchase price of EUR200 million or its US dollar equivalent. Carrying a tenor of five years, the Sukuk will be issued in one or several tranches. Profit payments to Sukukholders will be derived from the lease of the existing tenants in the three buildings. Proceeds from the Sukuk are to be allocated for investment projects which serve public interest such as public infrastructure and services. — NA